Aries Agro

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Originally posted by deveshkayal

Does anyone track Aries Agro, recently listed company. StanChart Premier Fund holds the stock. 

I did go through the annual report and IPO prospectus.

The company is increasing its capacity by 5 times !!!.

It manufactures micro nutrients which increase crop yield. Unlike fertilisers, micro nutrients are not subjected to govt policies.

The key question is the moat, since its fairly easy to set up a manufacturing unit but the company claims that one needs to have a solid R&D because the products need to be fine tuned based on subtle variations in soil condition. The company also has a vast nationwide dealer network which can provide it with a moat against competitors

Majority of sales are from AP and Maharashtra and like all agri businesses it is subjected to monsoon mood swings.

Its planning to invest a part of the IPO proceeds in 100 mobile vans which would sell Agri and other FMCG products to farmers in villages, something like a mobile hypermarket.

FY07 revenues were about 74 cr nearly 100% growth but 30 cr of it was from product trading.  Is it a case of boosting revenue figures before going for the IPO ?

There are also some ongoing litigations which might result in an outgo of about 15-20 cr.

Working capital requirements are quite high and it also has high debtor days. 

Currently, its trading at about 13-15x FY08 earnings.  What kind of valuations do fertiliser companies trade at ? Aries Agro should probably trade at a slight premium.

Finally and most importantly, what's the quality of the management ?  The promoters are TB Mirchandani & sons. They have been in the business for 30 years.

According, to the management, FY08 Revenues expected to be 105 cr, FY09 at 150 cr and FY10 at 200 cr. This would mean an EPS of Rs 21-22 at current margins. Its kind of  surprising that revenues will go up by 3x even though capacity is being increase by 5 times.